Singapore Budget 2022: how does it impact your personal finances?

Singapore Budget 2022 set out ways to broaden the tax base to cover expenses ahead.

Its core message, experts said, touched on building a more inclusive society. That generally means redistributing money raised from taxing those who have more, into the hands of those who have less. 

The speech also detailed a change in the CPF Basic Retirement Scheme (BRS), aimed at ensuring retirement payouts from Singapore’s annuity scheme keep pace with higher costs.

Let’s strip down Singapore Budget 2022 to discuss the impact on your personal finances.

Key measures

GST hike

The delayed GST hike will now be staggered over two steps. GST will first rise from 7% to 8% starting Jan 1 next year, and then to 9% from Jan 1, 2024. 

When the full hike is in place in 2024, the tax bump will contribute about 0.7% of gross domestic product in revenue a year, or about $3.5 billion.

GST, which stands for the goods and services tax, is a form of consumption tax. This simply means consumer goods — from food to electronics — and related services, will cost more. The broad reach of GST is reflected in its billion-dollar contribution to the coffers. 

Because GST is applied at the same rate on goods and services, without regard for the buyer’s income, GST — and any other such consumption tax — is a form of a regressive tax. Given this, the Singapore Budget 2022 included GST vouchers and other forms of relief to cushion the impact of the GST hike. This is particularly so for low-income earners here. 

Top 1% of earners to be taxed more

The highest marginal personal income tax rate will go up for income earned from Jan 1, 2023, to Dec 31, 2023. Resident taxpayers' chargeable income exceeding $1 million will be taxed at the top marginal tax rate of 24 per cent. Resident taxpayers' chargeable income in excess of $500,000 but no more than $1 million, will be taxed at 23 per cent.

These changes are expected to hit the top 1.2% of personal-income taxpayers, and add $170 million of tax revenue per year. 

Property tax rates will also go up, with more significant hikes for high-end properties. This comes as property taxes are deemed as Singapore’s principal means of taxing wealth. Luxury cars will also be taxed more heavily.

Together, these point to a more progressive approach in Singapore’s tax system.

Changes to CPF BRS (Basic Retirement Sum)

Singapore Budget 2022 also moved to ensure that retirement payouts from Singapore’s annuity scheme keep up with stronger inflation and a rising standard of living. As a result, CPF’s BRS has been raised for certain cohorts — the BRS is a benchmark used to determine the amount of monthly annuity payouts for retirees here.

The BRS will be raised by 3.5% a year for the next five cohorts turning 55 from 2023 to 2027. 

The BRS for those turning 55 this year is $96,000. The latest move means those who set aside the BRS of $114,100 in 2027 by the time they hit 55, will get lifelong payouts of nearly $1,000 a month starting from age 65, under the CPF Life scheme. 

Managing costs for the future

The last Household Expenditure Survey showed that households spent an average of S$4,906 a month on goods and services. Food, transport, and expenses tied to housing, ranked as the top three household expenditure items, in that order. 

As it is, Singapore's core inflation in January rose 2.4 per cent from a year ago, fresh data this week showed. This was the sharpest increase since September 2012.

If you are looking to tighten your belt in anticipation of higher expenditures, you may want to look closer at these expense items as part of their everyday budgeting.

It was also announced that Singapore’s carbon tax will be progressively raised to reach $50 to $80 per tonne of emissions by 2030. This is steeper than the previous target of $10 to $15 per tonne of emissions by 2030. In doing so, Singapore is aligning itself with the Glasgow Climate Pact, speeding up its net-zero target to around mid-century.

Natural gas makes up about 95 per cent of the fuel used to generate power in Singapore, and burning that creates carbon. The carbon tax — set in 2019 at $5 per tonne of emissions — will be upped to $25 per tonne in 2024 and 2025. Estimates show that a $25 carbon tax per tonne of emissions will likely mean an additional $4 a month in utility bills for an average four-room Housing Board household. So since higher carbon taxes effectively mean higher utility bills ahead, watch out for the electricity guzzling.

It is worthwhile checking too if your salary has been rising in tandem with higher cost of consumption – in taxes, in this case. The median household income from work rose in 2021 by 3.6% in nominal terms to $9,520, also crossing pre-pandemic income levels. Taking in inflation, median household income was up 1.5%. 

With rising costs, it is important for you to hang on to your buying power, even while holding down a secure job. 

Here’s a data point for perspective: assuming an estimated annual inflation rate of 2.5%, deposits saved across 20 years on average deposit rates would lag inflation by about 35%. 

So a customer with S$50,000 saved in cash will have S$53,406 after 20 years. But assuming an inflation rate of 2.5 per cent every year, S$50,000 will mean a nominal value of S$81,930 over the same period.

Meanwhile, watch the investment fees that are eroding your full returns. If you had been investing in global stocks since 1988 and paid a typical unit trust management fee of 1.7% for the exposure, your total returns last year would stand at about 490%. 

But if fees were managed down to 0.5% for the same exposure instead, you would have earned an extra 290% in returns, or 780% in total returns as at 2021. 

Ready to retire?

Just as importantly, the changes in CPF’s BRS remind us of the importance of retirement adequacy. In 2050, the number of Singaporeans above the age of 65 is expected to make up about a third of the population. A 2021 survey by Fullerton Fund Management suggested that Singaporeans think they would need $1.4 million for a comfortable retirement. 

Are Singaporeans confident about their retirement?

The Endowus Retirement Report 2021 found that 39% of Singaporeans are worried about retirement inadequacy. Almost half of Singaporeans polled had not planned for retirement at all. 

To add, OCBC’s Financial Wellness Index 2021 found that only 62.5% of millennials (people born between 1981-1996) have retirement plans. 

But thinking about your retirement cannot start at 55, when the BRS threshold is crossed.

The earlier you start, the more you can make and adjust your investments and lifestyle needs to accommodate rising costs, so as to retire with peace of mind.

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